Wall Street Bonuses Fall 14% to Lowest Since 2008 in New York Projection

By Freeman Klopott and Michael J. Moore -
Feb 29, 2012

Wall Street’s cash bonus pool fell
by 14 percent last year to $19.7 billion, the lowest since 2008,
as the securities industry shed thousands of jobs, according to
projections by New York (STONY1) state Comptroller Thomas DiNapoli.

Employees took home an average cash bonus of $121,150 in
2011, DiNapoli’s office calculated in a report based on personal
income-tax collections. The financial industry lost 4,300 jobs
between April and December, according to the report.

Smaller bonuses reflect “a difficult year on Wall
Street,” DiNapoli said today in a statement. “Profits were
down sharply, and securities firms in New York City resumed
downsizing in the second half of the year.”

Wall Street “faces continued challenges as it works
through the fallout from the financial crisis and adjusts to
regulatory reforms,” he said.

Profits at New York Stock Exchange firms’ broker-dealer
units were no more than $13.5 billion in 2011, less than half of
the $27.6 billion earned in 2010, making last year the second in
a row in which profits dropped by more than half, DiNapoli said.
In 2009, the units generated $61.4 billion in profit with the
help of federal bailouts, interest-rate cuts and proprietary
trading.

‘Profitable and Sustainable’

Cash bonuses in 2011 are expected to be about $2 billion
more than the recession’s low point of $17.6 billion in 2008,
and are a little more than half the $34.3 billion peak reached
in 2006, the report said. Bonus estimates don’t include stock
options or other deferred pay.

“Having Wall Street and the securities industry operate on
a model that’s profitable and sustainable is preferable to what
we had before, where you had high-risk behavior, high reward,”
DiNapoli said today in an interview in his midtown Manhattan
office. “When it came tumbling down, you had a deep dip and a
great valley. That’s really what has caused a great deal of
budget shock and revenue shock to the state and city.”

Skyrocketing compensation before the financial crisis
encouraged state lawmakers to craft unrealistic budgets in
expectation that Wall Street’s boom would continue forever, he
said.

‘On the Sidelines’

Wall Street firms cut bonuses and delayed more payments
after investment banking and trading revenue dropped in 2011.
Deal volume and trading activity fell in the second half of the
year as investors stayed on the sidelines amid concern that the
European debt crisis would lead to a global slowdown.

Goldman Sachs Group Inc. (GS) said it cut discretionary
compensation by more than 26 percent. Bank of America Corp. told
investment bankers to expect a 25 percent drop in pay, people
with knowledge of the discussions said last month. Credit Suisse
Group AG cut its 2011 bonus pool by 41 percent and paid some
senior staff in bonds backed by derivatives.

Morgan Stanley (MS) capped immediate cash bonuses at $125,000, a
person briefed on the plans said last month. Deutsche Bank Group
AG (DBK) set its cash limit at 100,000 euros ($135,000) and Barclays
Plc (BARC) capped cash bonuses at 65,000 pounds ($103,000) as lenders
pushed more pay into the future to bring down compensation costs
and satisfy regulators’ calls for long-term incentives.

Reduced Volatility

“The increased use of deferred compensation should create
a pipeline of bonuses that will be paid in future years, which
will reduce volatility in industry tax payments,” DiNapoli
said.

While Wall Street chief executives, such as Lloyd Blankfein
of Goldman Sachs and JPMorgan Chase & Co’s (JPM)Jamie Dimon, have
predicted that the slump in investment banking and trading is
temporary, DiNapoli said profits won’t return to those of the
boom years “any time soon.”

During the financial crisis, the industry lost 28,000 jobs,
the comptroller said. Before staff cuts resumed in April, Wall
Street had recovered 9,600.

“Maybe we’ll never go back to the kind of profits we had a
couple of years ago,” DiNapoli said in the interview. “If the
tradeoff is that we don’t have the kind of valley we had in ’08
and ’09, I think that’s a good tradeoff for everyone.”

Business and personal income-tax collections from the
financial industry accounted for as much as 20 percent of New
York state tax revenue before the start of the financial crisis
in 2008, DiNapoli said. The contribution declined to 14 percent
last year. New York City’s tax collections from Wall Street have
fallen to less than 7 percent of revenue from 13 percent, he
said.

The city’s budget projections are consistent with
DiNapoli’s bonus forecast, he said. The state, though, predicted
a bigger drop, “meaning revenue may be slightly higher than
anticipated in the last quarter of the current state fiscal
year,” DiNapoli said.